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Ex-Autonomy CFO: HP Trying To Hide Truth

Posted by Unknown on from the bad-decisions dept.

jfruh (300774) writes The fallout from HP's Autonomy acquisition keeps getting more dramatic. Autonomy's ex-CFO is trying to block the settlement of lawsuits that arsoe the botched deal, claiming that HP is trying to hide its "own destruction of Autonomy's success after the acquisition." HP hit back, saying the ex-CFO "was one of the chief architects of the massive fraud on HP that precipitated this litigation."

59 comments

  1. Two things I'm certain of... by serviscope_minor · · Score: 5, Insightful

    There are two things I'm certain of in no particular order:

    1. HP are wildly incompetent.
    2. Autonomy management (especially Lynch) are a bunch of crooks.

    I do actually know people who have had dealings with Lynch.

    --
    SJW n. One who posts facts.
    1. Re:Two things I'm certain of... by nine-times · · Score: 2

      But I heard they were both in Gartner's Magic Quadrant!

    2. Re:Two things I'm certain of... by TheMathemagician · · Score: 1

      Agreed but you missed out 3. Only the lawyers will get rich.

    3. Re:Two things I'm certain of... by fuzzyfuzzyfungus · · Score: 4, Informative

      Don't you have to remain in the 'More Magic' quadrant if you don't want the system to crash?

    4. Re:Two things I'm certain of... by Anonymous Coward · · Score: 0

      "I do actually know people who have had dealings with Lynch."

      You could be a journalist! Pretty solid right there.

    5. Re:Two things I'm certain of... by gbjbaanb · · Score: 3, Insightful

      you missed out the bit where HP wanted the Automony enterprise search stuff so badly, they just didn't bother working out how much the rest of the business was actually worth and made them a stupid (by Autonomy standards) but ordinary (by Silicon Valley takeover standards) offer.

      Mind, with WhatsApp being bought for $16bn, and only bringing a free> product to the table, you'd think the Autonomy deal was the paragon of financial prudence. that HP turned it into the equivalent of a free app is down to the competence of HP's management.

      Oh yeah, you already covered that. Was worth repeating though.

    6. Re:Two things I'm certain of... by __aaclcg7560 · · Score: 2

      [...] a stupid (by Autonomy standards) but ordinary (by Silicon Valley takeover standards) offer.

      I worked at a video game company that went on a spending spree prior to the dot com bust. Only later did upper management realized that they paid two to four times the actual value of each takeover. Crap in, crap out.

    7. Re:Two things I'm certain of... by Anonymous Coward · · Score: 0

      Well, HP board of directors and leadership at the time were wildly incompetent for sure. I wouldn't apply that to all of HP.

    8. Re:Two things I'm certain of... by HornWumpus · · Score: 1

      Only two to four? So they mostly got outbid?

      --
      John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
    9. Re:Two things I'm certain of... by putaro · · Score: 2

      Facebook stock trades at 94x earnings. HP trades at 14x. Facebook stock is quite a bit more risky than HP stock because it has so much forward growth built into it already. Zuckerman treats Facebook stock like Monopoly money because it pretty much is.

  2. What is "Arsoe" (in the first sentence) supposed t by Anonymous Coward · · Score: 1

    Doesn't anyone read this stuff before it gets posted?

  3. Re:What is "Arsoe" (in the first sentence) suppose by Anonymous Coward · · Score: 3, Funny

    Its the part of the anatomy that did the proofreading.

  4. Re:What is "Arsoe" (in the first sentence) suppose by paysonwelch · · Score: 0

    What's the anatomy - Doesn't anyone read this stuff before it gets posted?

  5. Re:What is "Arsoe" (in the first sentence) suppose by halivar · · Score: 1, Offtopic

    Hi! Welcome to Slashdot!

  6. I miss groklaw by charlieo88 · · Score: 5, Insightful

    Too bad there isn't a website like groklaw that would track these things and provide some pretty nifty analysis too.

  7. Is the CEO really trying to argue.. by timrod · · Score: 4, Insightful

    There's a line in the IT World article that really stands out at me, which is:

    "Autonomy founder and CEO Mike Lynch, who was ousted from HP in 2012, has denied any wrongdoing, saying publicly that HP was aware of Autonomy's accounting practices..."

    So in this case, Autonomy is making the case that they were cooking their books, but committing accounting fraud is perfectly okay because HP should've known about it... or am I missing something here?

    1. Re:Is the CEO really trying to argue.. by BenJeremy · · Score: 4, Insightful

      ...and he's also apparently arguing that, knowing Autonomy is cooking the books, and about to implode, HP thought it would be a great idea to buy them.

      Whatever one can say about the competence of HP's board, nobody could seriously claim they'd buy a company if they knew that was going on.

    2. Re:Is the CEO really trying to argue.. by fuzzyfuzzyfungus · · Score: 3, Interesting

      They may be drawing on the distinction between dubiously legal accounting practices and dubiously legal accounting practices that amount to fraud against HP.

      Since this lawsuit is brought by HP, alleging that it has been defrauded, demonstrating that HP knew what they were buying when they bought it would seem to be a sound defense(if not necessarily a plausible one or one that they will succeed in demonstrating).

      If it were the state coming after Autonomy for violations of accounting regulations this argument would be of absolutely no defensive value; but that isn't this case (and the penalties for just breaking the law are probably way lower than for defrauding shareholders large enough to sue you...)

    3. Re:Is the CEO really trying to argue.. by Charliemopps · · Score: 2

      Whatever one can say about the competence of HP's board, nobody could seriously claim they'd buy a company if they knew that was going on.

      I could. It's common for frauds of this nature to involve an disgruntled ex-employing of one company starting a business, then getting a conspirator for that old employer to help him sell is fraud to them. HP should look long and hard at who was pushing this deal inside the company. I wonder if the conspirator(s) knew the deal was shady but didn't realize it was a full-on fraud until it was too late.

    4. Re:Is the CEO really trying to argue.. by reanjr · · Score: 3, Insightful

      Non-publicly traded companies have some leeway with how they do their accounting. This is especially important for startups which may not have a relevant example to fall back on. Just because their accounting didn't meet HP's standards does not mean they were "cooking the books".

    5. Re:Is the CEO really trying to argue.. by tomhath · · Score: 1

      That seems to be their only defense at this point. May as well run it up the flagpole.

    6. Re:Is the CEO really trying to argue.. by gbjbaanb · · Score: 3, Insightful

      depends. Did they get a bonus for getting the takeover through?

      Takeovers tend to be very popular for just that reason.

    7. Re:Is the CEO really trying to argue.. by Anonymous Coward · · Score: 2, Interesting

      I left autonomy a bit before the HP acquisition (and was part of a different company that had previously been acquired by autonomy). Everybody there knew that autonomy handled their books oddly (ie booking all revenue from a deal before the services were delivered). It was explained to us that it was because autonomy was UK based and therefore were not subject to quite the same rules. If HP was not aware of the issues (which I don't believe), then it is still their fault because they obviously did not talk to many people within the company.

  8. Re:What is "Arsoe" (in the first sentence) suppose by BenJeremy · · Score: 3, Insightful

    I think it is intended to be "arose from"

  9. probably not by Anonymous Coward · · Score: 5, Insightful

    There's a line in the IT World article that really stands out at me, which is:

    "Autonomy founder and CEO Mike Lynch, who was ousted from HP in 2012, has denied any wrongdoing, saying publicly that HP was aware of Autonomy's accounting practices..."

    So in this case, Autonomy is making the case that they were cooking their books, but committing accounting fraud is perfectly okay because HP should've known about it... or am I missing something here?

    Probably not.

    I did my MBA in Entrepreneurship (yeah, I KNOW! Spare me!) and we spent quite a bit of time on financial due diligence. Some of the case studies - things that happened in real life - were just pathetic.

    Remember kids, all the bullshit that businesses pull on us consumers, they do to each other ten fold and justify by saying "you should have known better".

    Then if it's worth it, sue.

  10. Re:What is "Arsoe" (in the first sentence) suppose by Anonymous Coward · · Score: 0

    That whooshing sound you just heard over your head? That's the anatomy. ;)

  11. Mike Lynch here! by Anonymous Coward · · Score: 0

    The problem is I had an intimate romance with Meg Whitman. She's one spicy dish! But it ruined everything. Now I have nothing..nothing but Slashdot...

    1. Re:Mike Lynch here! by Anonymous Coward · · Score: 0

      The problem is I had an intimate romance with Meg Whitman. She's one spicy dish! But it ruined everything. Now I have nothing..nothing but Slashdot...

      That and a few billion of HP's dollars.

      Maybe you should buy Dice* and some competent (sentient? corporal?) Slashdot editors can arsoe from that.

      * - A plugged nickle should do

  12. These magic beans you sold me don't work by Anonymous Coward · · Score: 0

    One's an idiot, the other's a criminal. Not sure I'd want the reputation of being either.

  13. This is really egg on HP's face by putaro · · Score: 4, Insightful

    HP is a multi-billion dollar corporation. In other words, they get to wear the big boy pants. Due diligence is part of the acquisition process and it's a breach of the HP board's fiduciary responsibility to the shareholders to have gotten rooked so badly. I know people who worked at Autonomy prior to the acquisition and there were plenty of rumors going around about Autonomy's accounting shenanigans.

    Lynch and Hussain may very well have committed fraud on HP. However, getting taken for $8B brings to mind the old saying about a fool and his money.

    1. Re:This is really egg on HP's face by Solandri · · Score: 5, Informative

      Autonomy was audited by Deloitte. HP hired KPMG (who subcontracted Ernst & Young) to double-check Deloitte's audit. Those are three of the four biggest accounting firms in the world. All gave the green flag.

    2. Re:This is really egg on HP's face by smooth+wombat · · Score: 5, Insightful

      And these (some of them at least) are the same folks who signed off on the mark-to-market figures and related matters for Goldman Sachs, BofA and the rest of the folks who caused our financial system to collapse in 2007-2008.

      See a pattern?

      --
      We will bankrupt ourselves in the vain search for absolute security. -- Dwight D. Eisenhower
    3. Re:This is really egg on HP's face by Anonymous Coward · · Score: 0

      IBM owns Deloitte, right? Just sayin...

    4. Re:This is really egg on HP's face by rahvin112 · · Score: 5, Insightful

      If your accounting is violating all the rules it's possible to hide the real accounting information from everyone. Look at what Enron did with layers of fake companies that weren't on the books holding all the bad debt. When you go to that level of fraud the only people that are going to be able to unravel it are forensic accountants and months of fine toothed combs. The system is gameable because it operates on a system of trust, when these CEO's and accountants are willing to go to the level of full on accounting fraud the system we have doesn't work because it always assumed we had rational players that aren't two bit scammers. The degrading of ethics in business school has apparently turned that on it ear.

      Maybe the answer is for these accounting firms to hire real forensic accountants to analyze companies. But if we've reached that point it's even scarier than you can imagine. What I think we need to do is be putting these CEO's and CFO's in jail, for 15-30 years and assigning high enough criminal penalties and restitution to ensure they are broke when they get out. Sarbanes-Oxley gave them the teeth to make that happen, the problem is right now Crime pays. The justice department should be investigating everyone involved.

    5. Re:This is really egg on HP's face by Anonymous Coward · · Score: 0

      We've known since at least the last financial crisis that these account firms are crooks. They will pretty much say anything you want if you give them a cut of the take.

      Their involvement, in my mind, is damning proof of wrongdoing. Not the other way around.

    6. Re:This is really egg on HP's face by HornWumpus · · Score: 1

      Big (whatever the # is now) accounting firms are whores and have been for decades.

      They sign off on anything they are paid to sign off on and provide for someone to sue when it goes bad. Living in a fight club like world of % that go bad and average settlements.

      How they have avoided being sued into oblivion (those that have avoided it) would be a good subject for some investigative reporting.

      --
      John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
    7. Re:This is really egg on HP's face by putaro · · Score: 2

      Interesting - apparently they were suing Deloitte and KPMG but have now dropped them from the lawsuit. It seems odd that they'd let the auditors off the hook.

    8. Re:This is really egg on HP's face by LearningHard · · Score: 1

      I have been involved in the accounting and due diligence on several acquisitions in the 100's of millions and a few in the billions. If the executives want to buy a company bad enough they will downplay the findings and make the acquisition happen. Any time you hear about write-downs or other accounting issues after an acquisition rest assured management was fully aware of it. The auditors that look at this are good and will find these things.

      The problem is the auditors also want repeat business so they will say what the executives tell them to.

    9. Re:This is really egg on HP's face by Anonymous Coward · · Score: 0

      Yeah, and those audits mean squat. Generally these "audits" are nothing more than rubber-stamping a direction a company has already decided to take.

      I've been on the other end of M&A's where the incoming company was "audited" and the entire process was a farce. We deep-sixed the product within a year because it was complete garbage.... and had anyone asked anyone who knew anything internally, vs. getting one of these outfits to "audit" the business, the whole fiasco could have been avoided.

    10. Re:This is really egg on HP's face by putaro · · Score: 1

      Yes, right on the money. This was Apotheker's deal to save the company and transform HP into a software company. He was doing everything he could to ramrod it through, I'm sure.

    11. Re:This is really egg on HP's face by Archangel+Michael · · Score: 1

      All the laws on the books regarding Fraud, and yet it is perpetrated on such a massive scale and then goes generally unpunished. There may be a fall guy or two, but the main players get rich, hide their ill-gotten gains inside trusts that become untouchable, and their wealth is passed on to their heirs before the law can grab any of it.

      Want to fix the problem, get harsh. Make a law that hiding money in trusts and other means after perpetrating fraud is also an act of fraud and thus, confiscate the wealth from the heirs, and their estates/trusts until they are left completely broke. The reason they pull this shit, is because even if they don't get away with it, they have already passed the wealth on to the next generation of fraudsters.

      --
      Agent K: A *person* is smart. People are dumb, stupid, panicky animals, and you know it.
    12. Re:This is really egg on HP's face by Zontar_Thing_From_Ve · · Score: 1

      If your accounting is violating all the rules it's possible to hide the real accounting information from everyone. Look at what Enron did with layers of fake companies that weren't on the books holding all the bad debt. When you go to that level of fraud the only people that are going to be able to unravel it are forensic accountants and months of fine toothed combs. The system is gameable because it operates on a system of trust, when these CEO's and accountants are willing to go to the level of full on accounting fraud the system we have doesn't work because it always assumed we had rational players that aren't two bit scammers. The degrading of ethics in business school has apparently turned that on it ear.

      We had posts on this subject maybe a few months after the acquisition blew up on HP and it became to clear to everybody that HP got suckered. The posts at the time said that HP's upper management put heavy pressure on all parts of the company to quickly approve the purchase of Autonomy and dissenting voices who wanted a closer look were silenced. There were various outside sources prior to the purchase who were warning that simple logic dictated that Autonomy's claimed sales figures could not be correct, but we had several HP employees post here saying that nobody in upper management wanted to hear any "negativity" about the acquisition, so "due diligence" was rushed through.

    13. Re:This is really egg on HP's face by Anonymous Coward · · Score: 0

      All a (buying) company needs to do is interview a handfull of low-level employees from the (selling) company to know that there are bad things going on.

      Things like a politically charged work environment, super secret executive meetings, hallow promisses, and total ignorance of low level suggestions are key indicators that subterfuge is going on. And probably 1 in 5 employees can actually give specific info about those problems.

    14. Re:This is really egg on HP's face by sandbagger · · Score: 1

      They got suckered.

      Right. It's the fault of the bad people. Management is only responsible for decisions that work out. Adverse effects of decisions, or a lack of due diligence, or anything else is someone else's fault.

      --
      ---- The above post was generated by the Turing Institute. Maybe.
    15. Re:This is really egg on HP's face by Anonymous Coward · · Score: 0

      The degrading of ethics in business school has apparently turned that on it ear./quote As somebody who has been through an MBA recently, this statement is completely false. There were a fair number of my classmates who were unethical prior to enrolling in the program. Going through the MBA didn't change that. So its not the MBA itself, its the people it attracts that are problematic.

    16. Re:This is really egg on HP's face by rahvin112 · · Score: 1

      Low level employees don't know diddly. This type of accounting fraud is highly complex and not even accountants can spot it when reviewing the books, that's how insidious and dangerous it is. This is how Enron concealed their fraud, they created several hundred companies with no apparent ties to the parent company, they then booked fraudulent sales, put bogus debt numbers into accounts receivable and booked fake loans to the company.

      It's impossible to unravel this stuff if you don't know these companies are actually owned by the company cooking the books because it appears to be a separate company to the accountants and it's status is deliberately concealed (registered with fake names in foreign jurisdictions). The tactics used are right out of a mafia playbook for concealing and laundering money. You have to be specially trained to spot this type of behavior and its telltale signs, it's what forensic accountants specialize in and even then it can take months of digging to unravel what's going on.

      That's the problem, no one but the person in charge of the building the scam is 2 cents the wiser. Up until Enron crashed and burned, their accountants and all their employees (6000 people) had no idea what Ken Lay, Shilling and the complicit CFO had done. You say talk to low level employees I say look at the 6000 employees of Enron that had almost all their life savings in the stock and tell me how many had any idea the company was going under until the cash flow problems started.

      We can't have accurate accounting where one party in the system is willing to basically commit fraud and cook the books. Accounting is as much an art as a science and it is incredibly easy to commit fraud and create fraudulent sets of books. The basis of the entire stock market is that these companies aren't trying to deliberately defraud people to increase their own pocketbooks. That's why we need to throw the book at people that do this and put them in deep dark holes and take every cent they have. The damage it could do our economy if this became even slightly common would be enormous.

    17. Re:This is really egg on HP's face by putaro · · Score: 1

      I heard rumors from people working at Autonomy that they were shady long before the acquisition started. I kept hearing things like "If this were a US company the top management would be in jail" This kind of thing, where they were cooking the revenue numbers, involved a lot of people.

  14. HP, wildly incompetent by Alioth · · Score: 4, Interesting

    HP is wildly incompetent. They ruin every business they buy. Look at their "we're dropping VMS" and a while later "Oh no, we're going to port it to amd64" flagellations as they continue to ruin what's left of DEC and Compaq.

    We used to use software produced by Autonomy (actually, a company that Autonomy had earlier bought). As soon as HP took over, the customer service went to shit and we've since dropped the product because they had basically no flexibility when it came to changing demand and licensing. Previously, Autonomy would have been willing to work with us and allow us to change our licensing levels as demand for the service we were using this software for changed.

    --
    Oolite: Elite-like game. For Mac, Linux and Windows
    1. Re:HP, wildly incompetent by indulgenc · · Score: 1

      Sounds like you were using KeyView. Did you find a good alternative?

    2. Re:HP, wildly incompetent by Fubari · · Score: 2

      Kind of depressing hearing about HP (I like to toss this out whenever I read about HP doing something unwise).
      Step 1. Buy a really expensive company.
      Step 2. Ignore it for a year or so.
      Step 3. Rationalize how to dramatically throw it away.
      Step 4. Profit? What is a few billion $ between friends?

      Out of the longgg list of HP acquisitions, here are some
      of the more notable ones that caught my eye:

      * Verifone 1997 $1.1 (billions)
      * Compaq 2002 24.0
      * P&G IT: 2003 3.0
      * Peregrin 2005 0.4
      * MercuryInter. 2006 4.5
      * Knightsbridge 2006 ?
      * Opsware 2007 1.6
      * EDS 2008 13.9
      * 3Com 2010 2.7
      * Palm, Inc 2010 1.2
      * 3PAR 2010 2.3
      * ArcSight 2010 1.5
      * Autonomy 2011 11.0

      So have any of these actually been profitable for HP ? I knew that Palm tanked (bye bye, WebOS). I haven't heard good things about Knightsbridge. Compaq seems like it was a break-even deal.

    3. Re:HP, wildly incompetent by Anonymous Coward · · Score: 0

      Was it Verity?

  15. Re:What is "Arsoe" (in the first sentence) suppose by Assmasher · · Score: 2

    Don't be such an arsoe...

    --
    Loading...
  16. HP, wildly incompetent by Anonymous Coward · · Score: 0

    Was it TeamSite?

  17. Nah 2-3 years. by Anonymous Coward · · Score: 0

    But put them in supermax and tell their bunkmate they're the guy responsible for his grandmother/mother's destitution :)

  18. A great, great company once by sandbagger · · Score: 2

    When I was a kid, HP meant rock solid. They made bench test gear you could drive a car over. Then something happened. They turned into a company that would install a root kit on a reporter's computer because of an exposé -- rather than fix the problem revealed.

    I remember the very last time I bought something from HP. It was a CD burner that came out of the box broken.

    There was a book called How HP Lost Its Way that came out a few years ago. I never read it but I'd say that these recent events are current data points on a long term trend, not anything new.

    --
    ---- The above post was generated by the Turing Institute. Maybe.
  19. Re:A great, great company once by whoever57 · · Score: 1

    When I was a kid, HP meant rock solid. They made bench test gear you could drive a car over.

    That business was spun off, it's now called Agilent Technologies.

    Then something happened. They turned into a company that would install a root kit on a reporter's computer because of an exposé -- rather than fix the problem revealed.

    What happened was that HP got into the PC business. The PC business is completely different to most other businesses that HP was in: cutthroat margins, little technical innovation. PCs drove a change in mindset amongst HP's management and board.

    --
    The real "Libtards" are the Libertarians!